Mumbai University > Civil Engineering > SEM 8 > Construction Management

Marks: 5M

Economic order quantity is that size of reorder quantity for which the total inventory cost is minimum.

The main objective of materials management is to maintain supply of materials to an optimum level so as to provide acceptable customer service. In doing so the problems faced by the material manager are:

• Determining the reorder point
• Determining the reorder quantity

While the reorder point can be decided easily on the basis of site and market conditions, determining reorder quantity is not so simple.

If it is too high, the amount of capital that will be locked in and utilization of capital will take place. If it is too low, the ordering cost will increase and there is possibility of delays in work.

EOQ helps to solve this problem by giving the optimum order quantity for which acceptable service can be provided at minimum total cost. This is its significance in material management.